Semtech Stock’s Rally After Financial Results Isn’t a Total Surprise. There’s a Pattern Here.

semtech stock’s rally after financial results isn’t a total surprise. there’s a pattern here.

Shares of Semtech were making double-digit gains on Thursday after the semiconductor supplier turned in a surprise adjusted profit for its fiscal third quarter.

In early afternoon trading, shares were up 21% to $20.27, putting them on track for their best day since March 17, 2020, according to Dow Jones Market Data.

Late Wednesday, Semtech posted adjusted earnings of two cents a share, flying past Wall Street’s call for a loss of 15 cents a share, according to FactSet. Net sales of $200.9 million edged slightly above estimates of $200.5 million.

Strong earnings and sales seemed to overshadow weak guidance for the fourth quarter. Semtech said it expects net sales of $190 million plus or minus $10 million, lower than analysts’ forecast of $207.5 million. It also called an adjusted diluted loss per share of five cents plus or minus six cents, while analysts had penciled in a loss of seven cents.

Semtech’s strong Thursday stock performance shouldn’t be a surprise to investors who have followed the company in the past year. When Semtech posted fiscal fourth-quarter numbers on March 29, the stock tumbled 21% the next day. Shares climbed 4.9% and 10%, respectively, one day after the company released its fiscal first- and second-quarter data.

Benchmark analyst Cody Acree says Semtech’s financial performance is still being impacted by macro challenges, which seem to be improving slightly. “Meanwhile, the company is taking focused actions to realign its operations to enable it to not only manage the current headwinds but also to position the company for strong earnings growth when the demand environment improves,” Acree wrote in a Thursday report.

Fourth-quarter guidance “remains cautiously reserved, reflecting elevated channel and customer inventories stemming from previously overly optimistic projections,” he continued, adding that the company is channeling its attention on cost control and operational enhancements to address those concerns. Benchmark rates shares at Buy with a price target of $30.

Oppenheimer analysts led by Rick Schafer, who rate shares at Perform, echoed a similar viewpoint. “We see SMTC in prove-it mode as extended turnaround/integration efforts take root,” they wrote in a Thursday note.

An overwhelming majority of analysts are bullish on the stock, with 91% rating shares at Buy, according to FactSet, but even after Thursday’s jump, shares are still 29% lower this year. Its rivals, Analog Devices, Texas Instruments, and ON Semiconductor are up 12%, down 4.6%, and 21% higher, respectively.

Write to Emily Dattilo at [email protected]

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